The Hindu Business Line : The India story: Growth sans human development

OVER the past two years, there has been a growing optimism about the medium and long-term outlook for the Indian economy. Most economists in the country and abroad as also some of the reputed global institutions and consulting agencies believe that the country will be able to sustain an annual GDP growth of around seven per cent over the next decade. India already ranks among the fastest growing economies of the world, though it is as yet far behind China both in terms of growth rate as well as per capita income.

While the IT sector has already helped India achieve global recognition, its manufacturing sector is also showing unmistakable signs of a remarkable turnaround and resurgence. It is set to enter a new growth phase with many Indian companies going for acquisitions abroad and increasing their export earnings significantly. Hence, there is a growing consensus among economists that China and India would lead the global economic growth in the coming decades and that India is the next economic superpower in the making after China.

However, there are genuine concerns that poverty eradication in the country is still moving at a slow pace and regional inequalities have tended to increase further in the post-reform years. There is also a widening rural-urban divide that has led to increased incidence of poverty, which is more pronounced in rural areas because of the failure to create job opportunities both within and outside the agriculture sector.

Moreover, the country's human development record continues to remain dismal with poor literacy rate, large-scale nutrition deficiencies and malnutrition. Nutrition deficiencies are acute among rural children and women. The rural population also suffers from inadequate access to clean drinking water, sanitation and primary health facilities.

The UNDP's Human Development Report (HDR) 2003 ranks India 127 out of 175 countries in its human development index (HDI). The rank of a nation is determined on the basis of a composite index, which combines per capita income, life expectancy and the level of literacy.

Unless the country succeeds in eliminating hunger, malnutrition, illiteracy and large-scale poverty within a reasonable timeframe, there will be a setback to the reform process and consequently to the growth momentum of the economy. Already many of the crucial reform measures such as labour laws, privatisation, reduction in non-merit subsidies, the pricing of public services, etc are being shelved.

Hence, there are persisting inefficiencies and poor productivity levels in many areas.

The India Development Report 2004-05, the fourth in the series, released recently by the Indira Gandhi Institute of Development Research (IGIDR), Mumbai, is a valuable contribution to the ongoing debate on various issues and challenges facing the economy at this juncture.

The Report, edited by Mr Kirit S Parikh and Dr R. Radhakrishna and Published by Oxford University Press, looks at the current macroeconomic scene from both the growth and human development aspects and from the poverty perspective, and makes out a strong case for inclusive development.

The report admits that a higher rate of economic growth in the 1980s and the 1990s has been largely instrumental in reducing the poverty levels in the country. The proportion of population below the poverty line, which had remained constant (at about 50 per cent) till the mid-1970s, when the annual average growth rate of GDP had stagnated around 3.5 per cent, declined remarkably thereafter as the growth rate of the economy picked up. It fell from 51 per cent in 1977-78 to 39 per cent in 1987-88 and further to 26 per cent in 2000-01.

Analysing the macroeconomic scene, economist Manoj Panda points out that the average growth rate of the economy accelerated to 5.6 per cent during the period 1981-82 to 1990-01.

The average growth rate accelerated to 6.1 per cent in 1992-93 to 2001-2002 thanks to the robust GDP growth of 7.5 per cent per annum for three consecutive years 1994-95 to 1996-97.

However, there was a slowdown since then and the growth rate returned to about 5.5 per cent since 1997-98. The economy bounced back with the GDP growth estimated to have increased to over 8 per cent in 2003-04 after dipping to 4.3 per cent in the drought year of 2002-04.

The author argues that though the growth rate of the economy is not much different in the post-reform period compared with the 1980s, the economy today is more resilient to external and internal shocks.

While the growth during the 1980s was accompanied by large macroeconomic imbalances as reflected in fiscal deficit, current account deficit, foreign debt, debt service ratio, and finally the crisis of 1991, the growth during the past decade is accompanied by far greater macroeconomic stability.

Moreover, unlike the protective environment of the 1980s, the growth rates in the post-liberalisation period have taken place in a fairly competitive environment and despite some external and internal shocks. Today, the inflation is low, exchange rate is reasonably stable, foreign exchange reserves have been rising, short-term external debt is low, and foodgrain stocks are adequate even after a drought year.

Of course, a major problem area since the late 1990s is the unacceptably high level of fiscal deficit of about 10 per cent of GDP for the Centre and the States.

Ashima Goyal discusses this problem in a chapter entitled Puzzles in Indian Performance: Deficits without Disasters. She comes to the conclusion that rising fiscal deficits did not cause major problems largely because the domestic savings rose and economic growth was below potential. Investments did not rise to match the resources available. This implies that for the economy to grow at 7-8 per cent per annum in the coming years, there is a need to bring down fiscal deficit.

While the poverty ratio declined during the decades of 1980s and 1990s because of the relatively higher GDP growth, in a chapter devoted to the dimensions and character of poverty in India, R. Radhakrishna and Shovan Ray point out that in terms of absolute numbers, some 260 million Indians (193 million in rural and 67 million in urban India) remained below the poverty line in 1999-2000.

Moreover, the authors rightly emphasise the need to view poverty not merely in terms of income level but also other deprivations, including inadequacy of basic needs and rights as well as inadequate access to both productive assets and social infrastructure.

Referring to the two recent large-scale nationwide surveys, the authors point out that 47 per cent of the children in the country are malnourished and 74 per cent are anaemic; 36 per cent of ever-married women aged 15-49 years in the rural areas have chronic energy deficiency; 54 per cent of women aged 15-49 years in rural areas have no education; about 50 per cent of the pregnant women suffer from iron deficiency; 71 per cent of rural households do not have any toilet facility, and 51 per cent of the villages do not have any drainage facility — either underground or open.

Against this backdrop, the authors emphasise that poverty needs to be viewed as an outcome of multiple deprivations and not just income poverty. Hence, poverty reduction strategy should go beyond income poverty and empowerment of the poor should be considered a critical factor in accelerating poverty reduction and human development. The authors say that education is an important component of health, nutrition and material well-being.

The abysmally poor state of public health facilities is also a major cause for concern. The report devotes a separate chapter to the public health scenario in India, where Surjit Mishra discusses widespread prevalence of infectious, parasitic and other diseases. He also points out that public expenditure on health, as a percentage of total Government expenditure, has been declining over the years. There is a serious mismatch with allocations biased against rural areas (nearly three-fourths of the population gets merely one-tenth of the Budget allocation).

A major share of allocation is towards family planning and other national programmes. Even within that, more than four-fifths of the expenditure is towards salaries. This leaves hardly any scope for expenditure on infrastructure, equipment and supplies, and other requirements necessary for providing basic provision of health care. It is also stressed that effective public health measures also need to address issues of food hygiene, availability of clean air and water, and proper sanitation.

Jyoti Parikh, Kirit Parikh and Vijay Laxmi discuss the other related factors having a direct bearing on income poverty as well as human development, namely, lack of energy, water and sanitation and their impact on rural India.

They argue that low economic development is both a cause and effect of low accessibility to clean drinking water, sanitation and sewerage facilities and arrive at a conclusion that "a life free from hunger and diseases is what is required to improve human development index."

The problems of poverty and human development cannot be tackled effectively without stepping up the public expenditure on social sectors. S. Mahendra Dev and Mooij discuss the patterns of social sector expenditure in pre- and post-reform periods.

They point out that there is under-utilisation and mis-utilisation of funds allocated to these sectors and that the share of revenue expenditure in the total social sector spending has witnessed a sharp increase to over 95 per cent by late 1990s. Further, a worrisome development is the declining commitment to social development on the part of the States.

The other topics having an important bearing on India's growth process covered in the report are: India's Patent Policy and Political Economy of Development by Anitha Ramanna; New Technologies for India's Development by Jayan Jose Thomas; Trade Facilitation by Nirmal Sengupta and Moana Bhagabati; The New Basel Capital Accord by D. M. Nachane and Partha Ray; Hybrid Rice by Aldas Janaiah and Urban Transportation Trends by Sudhakar Yedla.

However, the overriding theme that emerges from this India Development Report is unmistakable. While the Indian economy has now entered a higher growth trajectory, the country is yet to cover a lot of ground in the area of poverty eradication and human development and that India cannot grow at a robust pace without Bharat.

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